Carmel may sell bonds to pay off CalPERS debt

The city of Carmel is poised to sell $6.4 million in bonds to pay off a debt to the state public employee pension system.

The refinancing will use bond proceeds to pay off the city's "side fund" debt to the California Public Employees Retirement System in a lump sum payment of $6.07 million.

The City Council, which approved exploring refinancing methods in July, will consider giving the OK to the bond sale at a special meeting Thursday.

The bonds are expected to be sold in December and paid off in semiannual payments over the next 10 years.

CalPERS is charging 7.5 percent annually on the city's side fund debt, and a council report says the bond issue and immediate CalPERS payoff will enable the city to save money in the long run.

The pension obligation bonds will be paid off from the city's general fund. The underwriter is Morgan Keegan Raymond Jones, and the trustee is Union Bank.

The side fund debts date back to 2003 when CalPERS pooled the city's pension plans with other small cities and agencies. The pension system said Carmel's pension obligations exceeded its assets by about $6 million and established the side funds. The side funds, covering miscellaneous and public safety employees, essentially are CalPERS loans to the city.

But a city committee in 2011 found nearly all of Carmel's side-fund payments for eight years went toward interest and the principal had grown to $6.2 million.

The committee, which was studying the city's overall CalPERS issues, said its top recommendation was to pay off the side fund debt by using reserves and bonds. The panel compared it to refinancing a mortgage.

This year, the City Council made retiring the side-fund debt a top goal.